19 December 2023
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On July 1, 2024, a comprehensive ban on pricing goods and services without including all mandatory fees will go into effect in California. This ban is the result of a bill recently signed into law by Governor Gavin Newsom, and similar proposed legislation has gained bi-partisan support from state governments and federal authorities. In the below article, JMBM partner Mark Adams discusses the implications of these legal developments for hotel owners. He emphasizes the need for full transparency to avoid financial penalties, litigation, and reputational damage.
The Final Check-Out: Bidding Farewell to Undisclosed Mandatory Resort Fees
by
Mark S. Adams, Hotel Dispute Lawyer
Partner & Senior Member
JMBM’s Global Hospitality Group®
Reprinted from the Hotel Business Review with permission from www.HotelExecutive.com.
In October this year, California Governor Gavin Newsom signed into law (effective July 1, 2024) a sweeping ban on pricing goods and services without including all mandatory fees or charges.
Presently pending in the U.S. Senate is a bipartisan-supported bill that would do the same.
These bills join state governments, federal authorities, state attorneys general, and consumer advocacy groups in intensified scrutiny of undisclosed mandatory resort fees included in hotel rates. Additionally, several state attorney generals and consumer groups are targeting hotels that charge undisclosed resort fees.
In response to this developing trend, it is imperative for hotel owners to quickly implement full transparency, revealing the total cost of mandatory resort fees upfront. Failure to do so may result in significant financial penalties, expensive litigation, and reputational damage among consumers, who often do not view these fees favorably.
What are Resort Fees?
Resort fees are extra charges imposed by hotels and resorts, ostensibly for providing certain amenities. This additional cost is typically calculated daily and added to the basic room rate. Resort fees are sometimes relabeled as a facility fee, destination fee, amenity fee, urban fee, or resort charge. In the end, they are all the same thing; and even if a guest does not actually use the amenities associated with the resort fees, they are still required to pay for them.
Consumer Complaints About Hotel Resort Fees
Resort fees have become a significant point of contention for consumers worldwide. These mandatory charges, often added to hotel bills after booking, have been criticized for their lack of transparency and fairness. Many consumers claim to be blindsided by these additional charges, only realizing they are being charged a resort fee when they check out. This lack of upfront disclosure makes it difficult for consumers to accurately compare room costs and budget for their stay.
The Justifications For Resort Fees
Several common explanations for why hotels charge resort fees include:
- Covering the cost of basic amenities (like Wi-Fi, gyms, and pools) provided to guests.
- Recouping revenue lost to online travel agencies (like Expedia and Travelocity) that charge commissions for each booking. Resort fees are not subject to these commissions, so hotels can keep more of the rate they charge.
- Boosting earnings and appeasing shareholders who expect higher profits. Resort fees are a source of additional income that can improve the bottom line of hotels.
- Advertising lower nightly rates to attract more customers, especially on online travel platforms. By adding resort fees later in the booking process, hotels can appear cheaper than their competitors. It is this practice that has led to the present zeal for forcing upfront disclosure and transparency.
Charging resort fees is not inherently evil or problematic. There are guests who consider resort fees reasonable and worthwhile, given the amenities provided – whereas others feel deceived and cheated if the resort fees were not transparently disclosed in advance.
Importantly, the laws enacted and the prosecutions undertaken to ensure full disclosure will create an even playing field, so that no one can falsely appear to offer a cheaper rate than the hotels that are already making full disclosure.
Government and Private Actions Against Hotel Brands Relating to Resort Fees
In response to growing consumer complaints over undisclosed resort fees, government entities have taken action against hotel brands, including the Attorneys General of DC, Nebraska, Pennsylvania and Texas. The non-profit consumer protection group Travelers United has also sued MGM, Hilton, Hyatt and Sonesta, and the Federal Trade Commission has instituted enforcement actions against hotels charging mandatory resort fees that are not included in the advertised room rate.
Some of the notable legal actions over resort fees include the following:
- July 2019: the Attorney General of Washington, D.C., sued Marriott, arguing that hotel resort fees violate Washington, D.C.’s Consumer Protection Procedure’s Act.
- July 2019: the Attorney General of Nebraska sued Hilton, arguing that hotel resort fees violate Nebraska’s Consumer Protection Act and Nebraska’s Uniform Deceptive Trade Practices Act. In September of 2023, Hilton announced that it is transitioning to displaying mandatory fees to consumers up front.
- February 2021: Travelers United sued MGM Resorts International, claiming that hotel resort fees violate Washington, D.C.’s Consumer Protection Procedures Act. They also raised the issue of resort fees being charged on “comps” and resort fees being charged in a pandemic.
- November 2021: the Attorney General of Pennsylvania settled with Marriott and promised to “unmask resort fees.” Afterwards, however, multiple Marriott properties began to add an undisclosed “sustainability fee.” In May 2023, Marriott implemented full transparency, displaying the total charge for resort fees upfront.
- May 2023: the Texas Attorney General filed a lawsuit against Hyatt Hotels for “violating Texas consumer protection laws by marketing hotel rooms at prices that were not available to the public as advertised.” The press release stated that “Hyatt implemented this practice by charging consumers mandatory and unavoidable fees – such as resort fees, destination fees, or amenity fees – in addition to daily room rates.”
- May 16, 2023: the Texas Attorney General announced that he had entered “into a settlement with Marriott International, Inc. to ensure that the global hotel company properly discloses resort fees and other hidden costs to consumers in its advertisements and during the room booking process.”
- August 2023: The Texas Attorney General sued Booking Holdings for “engaging in false, misleading, or deceptive acts and practices in violation of the Texas Deceptive Trade Practices Act.”
- August 2023: Travelers United sued Hyatt Hotels and Sonesta over their use of hotel resort fees. The lawsuit against Hyatt alleges that the hotel falsely advertises room rates; cheats customers out of millions of dollars through hidden fees; has added “junk fees” to room rates “for years”; and misrepresents the hotel company as a “destination” or “resort” to charge additional fees at checkout. The lawsuit against Sonesta alleges that it hides these extra fees because a consumer must click an “expand price details button” to discover that a “taxes and fees” line item includes a “destination fee” separate from taxes.
- September 2023: the Pennsylvania Attorney General announced that her office had reached a multi-state (Pennsylvania, Colorado, Nebraska and Oregon) settlement with Choice Hotels International regarding the disclosure of “resort fees” and “drip pricing” (which involves advertising a price that is less than the actual price that a consumer will have to pay for a good or service). Choice will advertise the total price of a customer’s lodging by the end of 2023.
- September 2023: Travelers United sued Hilton Hotels over their use of hotel resort fees. The lawsuit against Hilton alleges that Hilton engages in deceptive junk fee practices, and omits mandatory fees from the advertised room rates.
Legislation Pending in US Congress
The Hotel Advertising Transparency Act of 2022, introduced by Rep. Eddie Bernice Johnson (D-TX) in the House of Representatives on July 1, 2022. This bill would prohibit hotels and other lodging providers from advertising room rates that do not include all mandatory charges other than government taxes and fees. It would also empower the Federal Trade Commission and state attorneys general to enforce the law and protect consumers from deceptive advertising practices. The bill was referred to the House Committee on Energy and Commerce; however, it has not received any further action as of October 2023.
The Hotel Fees Transparency Act, introduced by Sen. Amy Klobuchar (D-MN) and Sen. Jerry Moran (R-KS) in the Senate on July 26, 2023. This bill would establish federal guidelines for pricing transparency that have, up until now, been voluntary. It would require anyone advertising a hotel room or a short-term rental to clearly show, upfront, the final price a customer would pay to book lodging. It would also make the Federal Trade Commission responsible for pursuing violations and allow state attorneys general to bring civil action for violations. The bill was referred to the Senate Committee on Commerce, Science, and Transportation, but has not received any further action as of October 2023.
Other Federal Laws Regulating Resort Fees
The Federal Trade Commission Act prohibits unfair or deceptive acts or practices in commerce. On October 11, 2023, the FTC issued a notice of proposed rulemaking to promulgate a trade regulation rule entitled “Rule on Unfair or Deceptive Fees,” which would prohibit unfair or deceptive practices relating to fees for goods or services; specifically, it prohibits misrepresenting the total costs of goods and services by omitting mandatory fees from advertised prices and misrepresenting the nature and purpose of fees.
California Laws Regulating Resort Fees
California recently enacted a comprehensive law that regulates resort fees, with others still pending.
The Consumers Legal Remedies Act (SB 478) amendment introduced by Dodd and Skinner was signed into law by Governor Gavin Newsom on October 9, 2023. This law makes it unlawful to advertise, display, or offer a price for a good or service that does not include all mandatory fees or charges (other than taxes or fees imposed by a government on the transaction). This law is intended to specifically prohibit drip pricing. The law will go into effect on July 1, 2024. Some believe that this law will have a nationwide effect and force hotels and lodging companies, online travel agencies, and comparison sites to display the full pricing since most national and international hotel brands desire to remain in the California market.
The California Resort Fee Bill (AB 537), introduced by Assembly member Marc Berman on February 10, 2023. The California legislature passed this bill on September 12, 2023. It is expected to be signed by Governor Gavin Newson. This bill prohibits short-term lodging providers (including hotel operators and residential properties rented to a visitor for 30 consecutive days or less) from advertising a room rate that does not include all fees and charges. The bill does not require that government-imposed taxes and fees be included in the advertised price; however, short-term lodging providers must include the total price to be paid, including government-imposed taxes and fees, before the guest reserves their stay. This bill also covers short-term rental cleaning fees, which are often added to the advertised price. The bill would become effective on July 1, 2024.
How Hotel Owners Should Respond
The recent legislation signed by California Governor Gavin Newsom, along with similar bills pending in other jurisdictions, reflects an unavoidable path towards transparency in pricing for goods and services. This is particularly evident in the hotel industry, where undisclosed mandatory resort fees are being scrutinized by state governments, federal authorities, state attorneys general, and consumer advocacy groups.
In order to avoid costly litigation and other negative outcomes, it is crucial for hotel owners to be proactive in response to this changing landscape, by disclosing all mandatory fees clearly wherever consumers book reservations.
Mark S. Adams, Hotel Dispute Lawyer, is an experienced trial lawyer and a senior member of JMBM’s Global Hospitality Group®. A primary focus of Mark’s practice is devoted to representing clients on hundreds of matters involving Hospitality Litigation, Arbitration & Dispute Resolution – from avoiding litigation to conducting complex, multi-state litigation, arbitration, and mediation.
Mark’s expertise is in business litigation involving contracts, corporate and partnership disputes, and hospitality disputes and litigation. On behalf of hotel and resort owners, Mark has successfully litigated the termination of long-term, no-cut, hotel management agreements, franchise agreements, fiduciary duty issues, investor-owner disputes, TOT assessments, and more. He has wide-ranging trial experience in various commercial disputes, including complex multi-party litigation and class actions. He has tried numerous cases in state courts, federal courts, and domestic and international arbitrations and is a frequent author and speaker on trial practice. Forbes, Reuters, and other publications have covered Mark’s trial wins. He obtained two of California’s 50 largest jury verdicts in the same year.
Mark has taken or defended nearly 1,000 depositions throughout North America, Europe, and the Middle East. The Wall Street Journal has quoted him as an expert on noncompete agreements. For more information, contact Mark at 949.623.7230 or markadams@jmbm.com.
For more recent articles written by Mark S. Adams, please see the following links:
Junk Fee Law: Exception for California restaurants moves forward
New Federal Junk Fee Law – The No Hidden FEES Act of 2023 (HR 6543)
Disclosing Mandatory Resort Fees – What Hoteliers Need to Know
The better way to resolve hotel contract disputes: Judicial Reference or Arbitration?
Should New York law govern your hospitality contract? How about Texas, California or Florida law?
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This is Jim Butler, author of www.HotelLawBlog.com and founding partner of JMBM and JMBM’s Global Hospitality Group®. We provide business and legal advice to hotel owners, developers, independent operators and investors. This advice covers critical hotel issues such as hotel purchase, sale, development, financing, franchise, management, ADA, and IP matters. We also have compelling experience in hotel litigation, union avoidance and union negotiations, and cybersecurity & data privacy.
JMBM’s Global Hospitality Group® has been involved in more than $125 billion of hotel transactions and more than 4,700 hotel properties located around the globe. Contact me at +1-310-201-3526 or jbutler@jmbm.com to discuss how we can help.
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